When the market corrects or falls into a bear market it can be hard to stomach. You will find on average a correction happens every two years and 25% of the time a bear market follows. As of the moment, we entered a bear market. In times like these stocks can fall 20% in a day and some might not survive the bear market.
I have found what makes these times easier is a dividend income. The great thing about having a dividend income and a dropping share price is the fact you can reinvest and compound the stock chosen a lot faster. Creating a dividend portfolio, one which pays you monthly, is quite simple to do. You are able to get a dividend every month by investing into three dividend stocks which pay out in different months.
The key to creating a good dividend portfolio is down to how you select your stock investments. It especially matters when the market is down and there is a lot of pessimism or fear. Focusing on companies with solid balance sheets, ability to generate returns with low cash levels and a low payout ratio is a must. You will find that if you don't invest into companies with these values, they will most likely cut their dividend. Dividend cuts are the opposite of what you want as a dividend investor. Creating a portfolio of strong dividend stocks creates the foundation and start of a dividend income.
Why choose a dividend income? I believe cash flow and passive income from dividend paying stocks presents one of the best and easiest way to start an extra income source. One way I look at it is every £1 I invest is a little worker, which works for me and pays me back.
Over the months and years, with every dividend, you are able to compound this. Compounding will create a larger and larger income, for example I will leave a screen shot of my monthly income. Though at first the income may not be great but dividend income is a long term strategy and in the long term if done correctly pays off.
What I love is that tracking the compounding of the dividends makes a nice bar graph, sometimes its the little things. Year 1 I made £85.77, I am sure this year I will make a lot more in dividends. Getting paid £85 in one year is a great feeling...but now imagine you got handed £85, what would you do? You can spend it, sure. But if you reinvest it back into a dividend stock with say a 3% yield, not only have you managed to buy another £85 worth of shares but that will give you an extra £2.55 next year in dividends. Now imagine repeating this over many years, you can see how it all adds up.
Always remember to always research stocks to make sure they are a strong healthy company and to keep re-evaluating stocks to make sure they still hold a place in your portfolio.